From periphery to core: EM to dominate global travel

If your mental map of the global economy puts emerging markets on the periphery and developed markets at the core, then developments in the global travel industry are set to turn you inside out.

By 2023, according to a new study by Oxford Economics, the “emerging” world will dominate global air traffic, accounting for 51 per cent of total traffic, up from 44 per cent in 2013 (see chart). The main drivers of this trend will be a rapid upsurge in international travellers from China, Russia, Brazil, India and Indonesia who spend at a quicker pace than developed world counterparts.

Source: Oxford Economics

The Oxford Economics study defined “emerging” as those countries not among the 34 members of the Organisation for Economic Co-operation and Development (OECD). As a definition this tends to underplay the weight of the emerging world, as the OECD includes several economies – Chile, Czech Republic, Greece, Hungary, South Korea, Mexico, Poland and Turkey – that are counted as “emerging” in other prevalent definitions such as the MSCI EM index.

Nevertheless, whichever definition is used, the picture does not change much. Developing country travellers – powered by a great leap overseas by Chinese – are set to change how the world turns.

The chart below shows the estimated share that BRIC countries – Brazil, Russia, India, China – hold in the outbound business travel market. The biggest jump is in China’s share – shown in the purple bar – to a forecast 19.88 per cent of the global business travel market in 2023, up from 8.25 per cent in 2013.

Source: Oxford Economics

The study sees a doubling in Chinese outbound travellers over the decade:

The potential market for outbound Chinese tourism could more than double to 220m households in the next decade.

China Confidential, a research service at the Financial Times, conducted a survey of 1,257 outbound Chinese tourists in January to predict a 15 per cent increase in outbound travellers this year to 112m, up from an official 97m in 2013 and 83m in 2011.

According to the China Confidential survey, Chinese travellers planned to change their shopping preferences very considerably while on overseas trips this year.

The slump in intentions to buy watches and jewellery – down 34.9 per cent from the same survey in 2013 – was thought to be due to the crackdown on conspicuous luxury spending ordered by Xi Jinping, the Chinese president. The 79.2 per cent surge in intentions to buy baby products, by contrast, was down to worries that infant milk formula sold inside China may be adulterated, following a series of scandals.

Source: China Confidential

Overall, Oxford Economics estimates, the global outbound travel spend is set to grow from US$954bn in 2013 to $1,886bn in 2023 – a 98 per cent increase. Asia, predicted to be the fastest growing region, is forecast to see outbound travel spending surge by 217 per cent to US$708bn in 2023 as Chinese, Indians and Indonesians discover the joys of overseas travel.

In an early indication of the way in which the world’s “periphery” (emerging markets) is rapidly becoming its “core”, China is expected to overtake the US this year in terms of spending on outbound travel (see chart). In 2017, it may overtake the US in terms of how much people spend on travel within national borders.

If the study is anywhere close to correct, the implications for airlines, hotel chains and a host of other related industries are fundamental.

Source: Oxford Economics

Back to beyondbrics